Returns At Schnitzer Steel Industries (NASDAQ:SCHN) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Schnitzer Steel Industries (NASDAQ:SCHN) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Schnitzer Steel Industries is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.15 = US$210m ÷ (US$1.8b - US$382m) (Based on the trailing twelve months to August 2022).

Thus, Schnitzer Steel Industries has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 17% generated by the Metals and Mining industry.

Check out the opportunities and risks within the US Metals and Mining industry.

In the above chart we have measured Schnitzer Steel Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Schnitzer Steel Industries' ROCE Trend?

Investors would be pleased with what's happening at Schnitzer Steel Industries. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 91%. So we're very much inspired by what we're seeing at Schnitzer Steel Industries thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Schnitzer Steel Industries is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 33% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 1 warning sign for Schnitzer Steel Industries that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.